The challenge of taming technology to work our way

The innovative power of technology could ostensibly galvanize the dynamism of the economy. The advent of the fourth industrial revolution in the 21st century marked the beginning of the digital world with the universalization of digital intensity and the diffusion of the Internet of Things (IOT). Big data, artificial intelligence (AI), machine learning (ML) and robotics tools have led to digital data size galloping from exabytes to zettabytes, making the technology both a catalyst and an operational risk if it is not properly channeled.

The biggest threat in the use of technology is cybersecurity and gullible innocent customers are easily influenced and tricked into sharing their credentials. Recently, RBI released a booklet – “Be(A)ware” illustrating the modus operandi of how digital fraud is perpetrated and how to protect against it.

Additionally, Industry 4.0 potentially enables the use of real-time data, greater interconnectivity that has radically changed the way businesses operate by integrating physical production and operations with advanced digital technology to create an exceptionally connected ecosystem and holistic with smart efficiency.

In short, the transition of the global phases of the business environment is interesting. The release of Industrial Revolution 1.0 (1780s) marking the use of steam power, 2.0 (1870s) ushering in automation and assembly line principles in manufacturing, 3.0 (1960s) with the entry of the he electronics and 4.0 (2000s) with the appearance of digital technology and the communication network mark the milestones in the evolution of our way of living, working and functioning.

More importantly, India is clearly banking on the demographic dividend. It has one of the youngest populations (62.5% of its population is in the 15-59 age group) in an aging world and when seen with the spread and rapid adoption of the English language , embracing the digital industrial revolution 4.0 has been elevated to gain global leadership in the innovative nuances of large-scale information technology application and exploitation. The growing number of unicorns, start-ups and service sector dominance echoes the technology collaborations and synergy of sharing testifying to India’s strength in unlocking technological potential.

1. Technology in the financial sector:

While Industry 4.0 has driven a universal capability upgrade, it is clearly visible in the financial sector where interoperability, speed, access and diversity of products and services have revolutionized the digital world.

Technology in action could be seen in banks, non-banks including fintech, neo-banks enchanting new era customers to adopt them to enhance their lifestyle. Apart from virtual banks, open banking – open banking data is entering India, where consumer banking and transaction data could be shared with the third party with the consent of the customers for greater collaborative use. The success of SBI’s YONO is further evidence that customers are going digital in exchange for fast access to services. Another strong digital manifestation is Kotak Mahindra Banks – 811.

The popularity of digital wallets such as Google Pay, Paytm, PhonePe and MobiKwik etc. in carrying out digital micro-transactions is a sign of technology penetration with the help of UPI innovated by NPCI. The recent launch of RBI’s UPI123Pay facility for feature phones to work without an internet connection is another milestone in building supply-side financial services. With every innovation in the digital banking space, the density of reliance on technology and the financial system are exposed to increasing associated operational risks.

In this technological environment, public sector banks struggling with economies of scale are unable to unleash technology at scale to pass low costs on to consumers so far, while new generation are looking for improved efficiency and not necessarily costs. Young new age customers are the segment sensitive to speed and access services. Improving advanced technology as it could replace the human component in traditional banks can improve operational efficiency by adapting to the new range of service providers. Optimization of technology by financial intermediaries to work in their own way can potentially reduce consumer costs provided it is able to add the desired synergy.

2. Bain & Co study:

It’s no surprise, then, that Bain & Co’s survey using its proprietary tool – Net Promoter Score Prism revealed that 56% of bank customers are willing to switch savings accounts, 59% for credit cards , 63% for car loans and 69% percent for personal loans from their existing banks to better service providers – fintech, neo-banks, among others. In contrast, 20-30% of respondents from the UK and 10-20% from the US expressed interest in migrating.

When we interpret this data from the demographic model, more bank consumers belong to a lower age group in India compared to these countries. By nature, Gen-y and Gen-z – the predominant consumer segment of banks are seduced by fast and mobile access to financial services via digital mode and their numbers are large and growing. The new generation segment of young customers is tech-savvy and tends to switch entities, but in the long run, the sustainability and ability of financial entities’ risk management strategies to protect consumer interests will play a role. differentiated. The long-term sustainable players in the financial sector will be those entities able to tame technology to their advantage by managing its upside risks.

3. The way forward:

The increased use of technology by financial entities while providing diverse, fast and efficient services to customers has recently begun to show early warning signs of growing operational risks. Regulators impose restrictions and sanction laxity in operational risk management. If they are not controlled in time, the risks can take on greater proportions, threatening the stability and soundness of financial entities. The recent example is RBI’s regulatory embargo on Paytm Payments Bank which requires that no new customers can be onboarded. Already in the throes of the Paytm IPO crisis, Paytm Payments Bank is facing restrictions for the third time reflecting recurring weaknesses in risk management. The bank has also been instructed to appoint an IT audit firm to carry out a comprehensive audit of its IT system. Similarly, in December 2020, the regulator banned HDFC Bank from launching new digital products or services and issuing new credit cards until the lender resolved the recurring technical issues.

Restrictions on the issuance of credit cards were lifted in August 2021. With the increased use of technology in the provision of financial services, entities are exposed to operational risks. Little knowledge is disseminated so far in the management of the operating room. Line management personnel are not sufficiently equipped with the skill sets to manage IT risks. Financial entities and regulators must work together to harness technology to their advantage and not allow it to spoil growth prospects. Technology is an enabler and can also be a risk in itself, if not managed well.

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